Extra resources for students of State and Local Government 180, an upper-division GE class in the Government Department at Sacramento State University

Monday, October 3, 2011

Sacramento Bee: City of Sacramento eliminates severance pay packages

City of Sacramento ends generous severance policy

By Ryan Lillis The Sacramento Bee

Published: Monday, Oct. 3, 2011 - 12:00 am | Page 1A

Copyright 2011 The Sacramento Bee. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

In one of his first acts as Sacramento city manager, John Shirey last month ended a policy that allowed hundreds of veteran city employees to walk out the door with an average of $33,000 apiece in severance pay.

When unused sick time and vacation were added in, some employees left with more than $100,000.

Shirey said the cash-strapped city no longer could afford to rely on voluntary buyouts that offered longtime employees special enticements to retire early. The city has laid off nearly 200 people this year without such severance payments. More layoffs next year are a near certainty.

A voluntary program doesn't provide the savings needed to address long-term fiscal problems, Shirey said: "We have to take more overt actions to reshape this organization for the 21st century."

Drawn up in 2008 and approved twice by the City Council, the severance policy gave managers discretion to offer voluntary buyouts that included special payouts based on the number of years an employee had been with the city.

City officials said the buyouts – known colloquially as "golden handshakes" – saved the city millions of dollars in the long term that otherwise would have been spent on salaries and benefits. And with so many older workers volunteering to resign, fewer younger workers were given pink slips.

But in a sign of the dire financial times that continue to grip City Hall, the voluntary-separation package – once marketed as a humane cost-cutting move – has gone the way of travel budgets and regular pay raises. With the city in its fifth year of budget shortfalls, officials said, they no longer can allow so many employees to leave on their own terms.

Shirey said the policy had run its course.

"Like a lot of things, if somebody doesn't go back and revisit the purpose of the program, it can just sort of stay on the books without notice," he said. "I think that's what happened here."

In all, 278 city workers were granted severance packages ranging from a few weeks' pay to $50,000, according to personnel records obtained by The Bee through a Public Records Act request. The city cut $9.2 million in buyout checks.

Many employees saw their payouts balloon by thousands of dollars by cashing out unused sick leave and vacation time, according to separate personnel records.

For some, their total buyout doubled thanks to the sick leave and vacation time. Eleven city workers received total payouts of more than $100,000, records show.

The city is obligated by law to let employees cash out unused vacation time. Officials said sick leave payouts were limited to workers with more than 20 years of service and that those employees received one-third the value of their unused time off.

Shirey and other city officials said they're confident the 278 severance agreements saved money. When the policy debuted in 2008, city officials projected it would save $13 million in the first year alone and $20 million in future years.

However, as the program progressed – and the city's workforce became depleted – the number of employees granted buyouts decreased steadily.

In 2008, 108 workers were approved for the program and accepted a severance. This year, that number dropped to 10. Now the city doesn't have enough money to cover the upfront costs necessary to keep the program going.

When it adopted the buyout program in March 2008, the City Council used $7 million in "rainy day" funds to cover severance payments. That reserve has been decimated; city officials said they have just enough in their savings to cover a single two-week pay period for the city workforce.

Even some who took advantage of the program question its viability in the current budget environment.

Councilman Darrell Fong, who retired from the Police Department in 2009 after nearly 30 years, was given a $50,000 severance when he stepped down, along with $35,123 in other payouts, records show. He said the severance program played no role in his decision to retire; he had "accomplished enough and gone where I wanted" in the department.

However, the severance offers did entice other officers to make an early exit, he said. Police employees were the city's most prolific users of the severance program. In three years, 76 police officers were granted severance packages. City officials said their departure is saving the department $8.8 million per year.

Sixty firefighters left through the program. Department officials said they have been able to avoid laying off firefighters as a result.

Fong, who donated his council salary this fiscal year to the Police Department budget, agreed with Shirey's decision to end the policy.

"Back then, when the city could afford it, it freed up a lot of positions," he said. "Now does it make sense for the budget? I think things have changed."

In tackling their own budget deficits, Sacramento County officials have not offered voluntary severances to all employees, believing the program did not make financial sense, said county spokeswoman Chris Andis.

But several local governments and public agencies have used the tactic. In Folsom, 58 employees took early retirements in 2009 and 2010. The city later eliminated 40 of those positions at an annual savings of about $3.2 million, according to spokeswoman Sue Ryan.

Roseville and El Dorado County have also offered separation packages.

And the University of California, Davis, began offering severance plans in February; 48 applications have been accepted, saving the university $3.3 million in annual salary and benefits, said spokesman Dave Jones.
Still, experts said there are signs the programs are beginning to fade.

"I don't think most public agencies think they are out of the woods (financially)," said Kevin Duggan, the Western Region director for the International City/County Management Association. "And if you have both an ongoing expenditure problem and don't have those reserves or savings, then you may have to resort to layoffs."